Wall Street’s Hot New Financial Product: Your Rent Check

Posted: May 20, 2015 in Economics

Over the last two years, private equity firms and hedge funds have amassed an unprecedented real estate empire, snapping up Spanish revivals in Phoenix, adobes in Los Angeles, Queen Anne Victorians in Atlanta, and brick-faced bungalows in Chicago. In total, Wall Street investors have bought more than 200,000 cheap, mostly foreclosed houses in some of the cities hardest hit by the economic meltdown. But they’re not simply flipping these houses. Instead, they’ve started bundling some of them into a new kind of financial product that could blow up the housing market all over again.

No company has bought more houses than the Blackstone Group, one of the world’s largest private equity firms. (Its many investments include Hilton Hotels, the Weather Channel, and SeaWorld. Among its institutional investors are Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, Deutsche Bank, and JPMorgan Chase.) Through its subsidiary, Invitation Homes, Blackstone has picked up houses through local brokers, at foreclosure auctions, and in bulk purchases. Last April, it bought 1,400 houses in Atlanta in a single day. In Phoenix, some neighborhoods have a Blackstone-owned home on just about every block. As of November, Blackstone had acquired 40,000 houses, most of them foreclosures, worth $7.5 billion. Today, it is the largest owner of single-family rental homes in the nation.

Karen Minot; original map and research by Anthony Giancatarino, Symone New, and Jose Taveras

Blackstone’s deep pockets—$248 billion in assets under management and a $3.6 billion credit line arranged by Deutsche Bank for buying houses—allow it to outbid individual buyers, driving up local real estate prices and pushing families out of the market. “You can’t compete with a company that’s betting on speculative future value when they’re playing with cash,” says Alston. “Institutional investors are siphoning the wealth and the ability for wealth accumulation out of underserved communities,” adds Henry Wade, cofounder of the Arizona Association of Real Estate Brokers.

Full Story @ [MotherJones]

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